Goldman Sachs thinks Saudi Arabia is leading oil cartel Opec in a policy of “shock and awe,” making bigger than expected supply cuts in an effort to lift pnces. Khalid al Falih, Saudi Arabia’s energy minister, said this week that the kingdom’s production would decline to near 9.8m barrels a day next month. That is more than 1m b/d less than it pumped in November before agreeing with the rest of Opec and Russia to tighten the spigots, and 500,000 b/d below its output target from the group. The country’s exports will also fall to the lowest level for the month of March since 2011.
It is not hard to see why Goldman’s analysts believe Saudi Arabia is pursuing shock and awe – and not just because it chimes with their own view that crude will rise next quarter. So should investors line up with the world’s top oil exporter and one of the most influential banks in commodities to bet it all on the black stuff? You could be forgiven for thinking there is easy money to be made when two powerhouses of physical and financial oil align.
Not so fast. The oil market has already absorbed a remarkable amount of bullish news over the past month, from sanctions on Venezuela to signs Washington will try to squeeze Iran’s oil exports harder this year. The oil price has responded by bobbing around in a narrow range just above $60 a barrel, with last year’s highs of more than $86 now a distant memory.
So why is oil so flat? Well, quite simply, not everybody buys the bullish narrative. The primary reason remains the US shale industry, whose rapid production growth triggered crude’s 40 per cent peak-to-trough slide late last year. Traders have reason to be wary. The US Energy Information Administration this week raised its forecasts for average US production in 2019 to 12-4m b/d, anannual increase of 1.45m b/d. It is also 350,000 b/d higher than predicted three months ago, despite warnings from some quarters that shale is slowing down. Twelve months ago the EIA forecast 2019 growth would be just 590,000 b/ d.